Today we are talking about why I believe the 10 year fixed mortgage offers more protection, stability and potential savings than any other available term in the market today.
In 2012 we have a rare opportunity to actually, fully take advantage of all the benefit’s of a 10 year term, but before we begin in order for you to even consider a 10 year term you need to believe that interest rates are going up. If you have any doubt take a look at this chart it that shows a comparison between the 5 year fixed and bank of Canada prime over the past 25 years. When you review it closely you will see that every period of low rates is followed by a significant quick increase in rates.
This happens because the government uses the variable to help curve consumer spending and manage inflation. When interest rates are low Canadians spend more, when interest rates are high we tend to spend less, and what the government has found is that if they slowly increase rates are spending habits don’t change. So what they do is they raise them quickly so that new borrowing costs us dramatically more and immediately become reluctant to borrow new money. All at once the economy slows down and the risk of inflation lowers. Now with that said multiple economists, the bank of Canada and even the prime minster have been forth right with Canadians. They have all told us that the interest rates that are currently available today are consider “emergency rates”, which means they are only available now to help stimulate the economy and they will disappear. The writing is on the wall for rates to raise, the only real question is when will it happen and and how high will mortgages go?
Now if we listen to economist they believe that interest rates are going to remain low for the balance of the year and should raise in early 2013. Which means that we are coming to the end of the emergency rates, and even though they are not predicting huge increases in variable and fixed rates consumers need to prepare for them to return back to their averages.
Understanding this is key because as we get closer to when interest rates begin to raise the low long term fixed rates will disappear quickly. And as mentioned early when rates start to rise it happens fast, and with interest rates being at all time historical lows now is the time consider locking in before these rates disappear.
You can protect your mortgage right now for around 3.99% for the next 10 years which is lower than the average Variable rate mortgage since 2000, and 2.78% lower than what the average 5 year fixed rate.
Now I know that I failed to show you what you can get in a 3 – 5 year rate and I did this because I believe that these rates are financial traps that are going to lead you to renewing your mortgage in the heat of increasing rates in 4 to 5 years.
If we look at today's interest rates you have the following options available but the mortgage what I see most people drawn to or gravitating is the four year fixed rate, and its being offered between 2.89% – 3.19%. I’ve heard most people talk about this mortgage saying things like the shorter term is better I can refinance sooner if I need more money, and the rate is lower than the 5 year fixed and in most cases even lower than the variable rate, and it is the mortgage I would be recommending if we didn’t have the option of a ten year term.
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